A SEP IRA is a retirement plan for self-employed individuals and small business owners, allowing them to contribute a significant portion of their income tax-deferred.
In Depth
A Simplified Employee Pension (SEP) IRA is an individual retirement arrangement that allows employers to contribute to their own retirement and their employees' retirement. It's particularly popular among self-employed individuals and small businesses with few or no employees due to its low administrative costs and high contribution limits. Contributions are tax-deductible for the employer, and earnings grow tax-deferred until retirement. Unlike traditional IRAs, only the employer can contribute to a SEP IRA.
Example
Sarah, a freelance graphic designer, uses a SEP IRA to save for retirement, contributing a percentage of her self-employment income each year.